Treasury yields sink as data raise economic fears

SAN FRANCISCO (MarketWatch) -- Treasury prices rallied Thursday, pressuring yields, after worse-than-expected data heightened fears about the U.S. economy and increased the safe-haven appeal of fixed income assets.

A key gauge of manufacturing in the Philadelphia region as reported by the Federal Reserve Bank of Philadelphia came in far below forecasts. The Philly Fed diffusion index fell to -24 in February, while economists were expecting it to improve to -10. Read The Fed.

"In addition to the data aiding the bid for Treasuries, we also saw yields pushed lower by a series of rumors about additional write-downs related to the mortgage market and a general sense that there is more pain to come," wrote David Ader, head of U.S. government bond strategist at RBS Greenwich Capital, in a note to clients.

"While the rumors went completely unconfirmed -- as is often the case, they did add to the bid," he said.

Treasury prices "jumped higher as shorts scrambled to cover after the Philly Fed disappointed expectations for a rebound. Instead, it fell to a fresh seven year low," said analysts at Action Economics.

Separate data from the Conference Board showed the index of leading U.S. economic indicators dipped by 0.1% in January, as weaker stock prices and housing data drove the gauge to a fourth consecutive monthly decline. See Economic Report.

The Labor Department reported Thursday that initial filings for state unemployment benefits continued to trend lower after spiking earlier in the month. First-time jobless claims declined 9,000 in the week ended Feb. 16 to 349,000, making their lowest level in a month. See Economic Report.

On Wall Street, stocks opened higher but erased gains and closed with losses, adding to demand for Treasurys. See Market Snapshot.

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